INTERNATIONAL JOURNAL OF SCIENTIFIC & TECHNOLOGY RESEARCH ... · PDF filebecomes PKR one billion brand equity due to ... effective business performance of FMCG sector of ... Sampling

INTERNATIONAL JOURNAL OF SCIENTIFIC & TECHNOLOGY RESEARCH VOLUME 1, ISSUE 10, NOVEMBER 2012 ISSN 2277-8616

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TQM And Business Performance: An Investigation Into FMCG Companies In Pakistan

M. Jiyad Shaikh

Abstract:- The phrase by Feigenbaum (1951) that quality is never an accident; it is the result of intelligent efforts is rightly indicating the fruitful effects and outcomes for quality management systems like TQM and clearly depicting that right and intelligent efforts in the right direction will produce quality results which in turn creates value of organization in the market. While examining this independent study, I will analyze the impact of TQM practices in fast moving consumer sector of Pakistan (FMCG).FMCG which are chosen for this research are Unilever, Reckitt and Engro foods. The main areas which are encompassed in this research are revenue and profitability improvement and organizational fat reduction by virtue of TQM practices in these organizations. Do organization’s vision, mission and quality management systems have a contribution in firm’s revenue and productivity improvement and also fat reduction? If any relationship exists among them then what is the significance among them. What are impacts of effective business processes, financial well-being and financial competitiveness on revenue and profitability improvement and fat reduction? Is TQM is an integral part of firms strategy for continuous improvement? Is this industry is truly benefited by TQM principles in terms of business performance at a larger extent? This variety of inquiry will be retort in this study. Key word:- Pakistan, organizational fat, TQM, revenue, profitability. 1.1 INTRODUCTION Pakistan is a growing market from FMCG perspective and one of the fastest growing markets after India in south Asia. Pakistan is also included in developing and emerging market where trends are changing and shifting at a high pace. With the inclusion of modern trade like hyper star and metro, thrust to the FMCG product purchase has been magnified by multiple times. Unilever is the largest FMCG in Pakistan and had a turnover of PKR 20 Billion in 2007 v/s PKR 56 Billion in 2011 exhibiting a growth of 180% in terms of turnover in last five years where as Reckitt was a PKR six Billion company in 2007 v/s PKR 10Billion Turnover Company in 2011showing 66% growth in last five years. Another company which was evolved at the local level is Engro Foods, which is operating in diary business, beverages and Ice cream products. Inception of Engro Foods was taken place in 2004 with the launch of dairy milk known as Olpers and in only six months after its launch it becomes PKR one billion brand equity due to quality innovation. Since beginning quality is one of the foundation stone of Engro Foods and it is also enjoying a turnover of approximately PKR 25000 million by year end 2011 (Hussain 2011). Due to aforementioned opportunities in Pakistan every FMCG company is trying to increase their turnover, revenue and profitability by double or triple times. In order to meet their goal every company is focusing on improving business performance by eliminating organizational fat i.e. unnecessary resource or waste by applying TQM practices and become more and more efficient. With fierce growth ambition by FMCG sector in growing market of Pakistan and equipping them with more and more advanced quality systems there is a need for establishing a relationship between TQM s and business performance indicators. Very few studies have been conducted comprehensively in Pakistan on role of TQM as effective business performance enabler. In order to cope up with the upcoming challenges every FMCG is heavily relying on TQM applications for improving their financial parameters like revenue and profitability and reducing unnecessary waste. Globally, Total Quality Management (TQM) is a popular concept in the business world. However, in Pakistan, this is still an emerging subject. Since, the competitions are getting tougher for the Pakistani products in the international market; it would become further difficult

to compete in the international market if we ignore the upcoming quality standards which our competitors are practicing. Therefore it is imperative to find the level of effectiveness (effect on revenue, profitability, and reduction of organizational fat) and feasibility of TQM in Pakistan with special reference to the FMCGs. This research study comprises of the objectives to determine how TQM principle contributes in business performance improvement of FMCG industries in Pakistan broadly and how revenue, profitability could be improved and fat could be reduced by implementing TQM. For this purpose the thematic scope of this research is the concept and applications of TQM for effective business performance of FMCG sector of Pakistan. Three companies Unilever Pakistan, Reckitt and Engro foods have been selected for this study as these are leading FMCG companies of Pakistan. The geographical scope is Karachi city which is economic hub of Pakistan. There are also few limitations that were considered during the methodological process of this study as data confidentiality policy at corporate sector would be a limitation in some cases while gathering data and due to broadness of this research area and time constraint the sample size is not large. 2. Research Design The basis of this study is to explore the level of TQM contribution in impacting over all business performance FMCG organizations. Since, it is a quantitative study therefore it comprises of extensive primary and secondary sources. Data is collected from the employees of three major FMCG companies in the market and each individual's point of view is focused in the study. For this purpose stratum of vice presidents, directors and managers were formed in each FMCG and stratified random sampling has been applied for sampling. Data have also been gathered through observation, interviews, Articles and internet. The collected data have been tested through different statistical tools like regression and ANOVA in order to explore the level and extent of relationship between TQM and organizational revenue and profitability enhancement. ANOVA is also applied for determining the contribution of TQM in reducing organizational fat. Organizational revenue is further tested by applying Auto regressive moving average (ARMA) model on secondary data in which sales

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revenue data has been collected from Reckitt and Unilever for the time period of 1991 to 2011 and with ARMA model. Research is designed in the following way to get the answers of the questions raised in this research within limited available resources and time period. 2.1 Research Methodology Since research is quantitative in nature so data has been collected through the primary and secondary sources. Primary data has been collected through a questionnaire based on Likert scale comprising 19 questions (Annexure 2) and for secondary data collection journals, magazines, internet, books, research reports have been consulted. Research study encompassing the factors (revenue, profitability and organizational fat) which are validated thorough literature review for evaluating business performance. Three hypotheses were formed on organizational revenue improvement, profitability enhancement and fat reduction encompassing the variables described in conceptual framework and hypotheses of the research.90 questionnaires had been distributed 30 in number at each organization i.e. Unilever Pakistan Ltd, Reckitt and Benkiser Pakistan Ltd and Engro Foods Ltd. An extensive regression and ANOVA analysis have been done which will derive the contribution of TQM in business performance improvement in terms of productivity, revenue and organizational fat reduction. Organizational revenue is further tested by applying Auto regressive moving average (ARMA) model on secondary data for determining the revenue forecasting without TQM implementation and comparing it with the realized revenues after TQM implementation and for these purpose revenue figures of Reckitt and Unilever were collected from 1991 to 2011. 2.2 Samples and Sampling Technique Sampling units of this research are three FMCG companies of Pakistan. This includes Unilever Pakistan Ltd, Reckitt and Benkiser Pakistan Ltd and Engro Foods Ltd. Sampling technique used is stratified random sampling with disproportionate sampling. Sample taken from these companies for filling the questionnaire is classified as below directors, senior manager and managers 2.3 Research Instruments Research instrument for primary research consists of a questionnaire (Annexure 2) which is crafted on the basis of Liker scale. Liker scale is selected for getting the feedback from Top management regarding TQM practices in their organization. All the variables are addressed in the questionnaire for seeking the feedback from the respondents on the basis of Liker scale regarding impact of TQM on overall business performance in terms of revenue, profitability and organizational fat. Auto regressive moving average (ARMA) model was used on secondary data for determining the revenue forecasting without TQM implementation and comparing it with the realized revenues after TQM implementation.

3 LITERATURE REVIEW TQM origins can be traced back to early 1949, when the Japanese formulated a union which comprises of engineers, scientists, scientists known and famous by the name of JUSE. It also includes some quality gurus, scholars and officials of the Japanese government. The dedicated team was formed with the aim of productivity improvement and enhancing post World War II living standard and life quality of Japanese people. A great deal of persuasion is also came from Juran’s (1988) philosophy and the committee of aforementioned people crafted a curriculum and made statistical quality control (SQC) as an integral part of Japanese engineers course work and rigorous training. It also involves the extensive application and preaching of Deming’s principles and philosophy across the manufacturing sector of Japanese industries (Walton, 1986). In Japan TQM evolve miracle innovations in management like quality circles, manufacturing cells, JIT, equity circles and Hoshin planning (Ishikawa, 1985: Akao, 1991). With the passage of time as quality philosophies and programs became more popular, mature and understood by people by realizing its outcome, it became clear that TQM philosophy could also be applied to manufacturing firms, service industry and other different sectors like automobile, telecommunication, oil and gas and fast moving consumer goods (FMCG) etc. American industries also took notice regarding TQM philosophy around 1980, when some observers of united states policy making highlighted that with the passage of time Japanese standard of service and manufacturing quality had leveled or beaten the quality standards of manufacturing and services companies operating in United States. (Abernathy and Hayes 1980).productivity graphs complimented these assertions, leading some more scholars and gurus to forecast that until unless there is a drastic alteration is not made in the American management principles it would not remains competitive anymore across the globe. Growing and revolutionize economies like China, Japan , Korea and some other countries of Asian continent would be the global leader in manufacturing and trading with further denting the American economy to a second level of world economies (Grayson and O’Dell,1988). Many of the famous united state firms which include Xerox, Motorola and Ford were quite influenced about TQM miracles and impact on Business performance after losing market share against efficient, high quality Japanese producers. For the purpose of improving their business performance aforementioned firms consulted many quality gurus like Deming, Juran, Crosby (See Annexure 1) so that they can set the Japanese quality practices as their baseline or foundation stone and thus they got the chance to become first mover in U.S industries as adopters of Japanese TQM philosophy. If we look at fortune 1000 firms it would be amazingly noticed that all these firms have a common thing which is TQM implementation. It is a very strong rationale and evidence about belief of management of these companies that TQM is enabler of business performance improvement. However, substantial performance impact on role of TQM in business is verified by both the subjective proof and the empirical evidences. As described by TQM gurus TQM always results in value addition in a number of forms which includes better understanding of Customer’s needs, improvement in satisfaction level of customer, better




understanding at organizational level, better problem solving approach, higher extent of employee motivation and commitment, partnering with vendors, poka yoke (error proof system) and lean environment (Juran, 1988: Schmidt and Finnegan, 1992: Spechler, 1991) (See Annexure 1). In the year 1989, the conference board in New York published a comprehensive study of the parameters and principles pertaining to quality which are followed at U.S organizations. Out of 800 surveys they distributed they received 149 surveys in response. It was found that 111 (74.5%) organizations had are enjoying benefits due to on time and well placed quality systems and initiatives. Also more than 30% organizations revealed that TQM had contributed a lot in improving their business performance. (U.S GAO.1991). In the year 1992, the Arthur D. Little formed a report which was created in-house on the basis of a survey conducted on large United States organizations. The organizations which were selected for conducting this study were 500 in number (Arthur D. Little, 1992). Among the firms in which survey was distributed almost 93% of respondents claimed to have quality systems placed within their organizations in the form of TQM or some other form, with thirty five percent firms claiming that they experienced significant performance improvement and impacts due to TQM efforts, and other 62% forecasting a significant impact over a time period of next three years. In 1991, research project was conducted known as international quality study, which was a project jointly conducted by Ernst and Young and American quality foundation. It was a study which observed the TQM efforts over 500 firms in different sectors like computer firms, automobile, health care, money and banking in the countries like Japan, Germany, United States and Canada. Through in-depth filed interviews and controlling the differences like nation and Industry, this research was conducted in a more rigorous manner than earlier researches. The main outcome concluded is that TQM practices mainly improvement in processes through value stream mapping and vendors rating through suppliers certification contributes in the performance improvement globally and universally (American Quality Foundation, 1991). The level of accessible proof regarding TQM is perhaps defined in the best way by Haim (1993). He infact summarized the crux of almost twenty different researches on TQM. Among those 20 studies reviewed, 15 provides proof on the impact and effectiveness of TQM and other interrelated practices on external, internal and profitability (bottom line) measures. Out of these 20 studies, 12 studies rely completely on perceptual mapping of company managers thoughts, two add external validation by merging the respondents perceptions with firms records analysis. One mores study out of 20 uses externally judged measures of performance and TQM. Three studies out of aforementioned 20 papers, reported any sort of quantitative or numerical view and measurement of the profitability Impact of TQM. Regarding the other researches and studies, are the simple judgments about whether or not TQM enhanced the profitability (bottom line) (Haim, 1993). One of the three studies that Haim (1993) indicated possesses any sort of quantitative measurement regarding the impact of TQM on fiscal performance. Another study conducted by Fitzerland and Erdmann (1992), who

guesstimate the impact of KAIZEN or continuous improvement practices, one of the key enabler of TQM, relying on the feedback received from 280 or more automotive suppliers. The result of the survey depicts that over two to three year duration, respondents validated a mean increment in profits by 17% due to KAIZEN efforts. A more recent work in terms of research was conducted by Deloitte and Touche and CEEM Information Services which revealed that 620 respondents from ISO 9000 registered companies confirmed an annual cost savings between $ 25,000 to $ 600,000. With an annual savings figure up to $ 179,000 (Quality Systems Update 1993) this survey established a relationship and strong evidence regarding cost savings by applying TQM practices. Another study on TQM impact on business performance indicators was conducted by Heller (1994), who devised that a portfolio of 150 TQM firms had a statistically significant a normal alteration of 4.95% in the prices of stock over a time period from 1989 to 1992. Heller selected the TQM firms by applying criterion constructed from the Baldrige Award and numerous popular resources of information on the subject of TQM. A limitation of the research conducted by Heller (1994) is that they only took and capture the fractional impact of effective TQM agenda execution. Moreover, the study revealed no relation of stock price hike due to excellence in operating performance. According to the studies conducted by Deming (1982) and Crosby (1979) quality has an inverse relationship with cost and hence optimal point for conformance level is actually zero defects. Empirical substantiation tends to compliment Deming (See Annexure 1) and Crosby (See Annexure 1). Improvement in quality leads to revenue increment and thus improving conformance level increase the profitability of the firms (Garvin 1983, Abernathy et al. 1981). Another study conducted by Porter (1980) suggests that TQM adoption also make your product’s positioning as a unique one so that you can charge a premium price on it resulting in increased revenue. By realizing the importance of TQM and its output in manufacturing and service industries, processes Industries and FMCGs are also inclined towards TQM implementation for getting the maximum out of their business performance. From the TQM tools which are available, FMCG companies opted the tools that are appropriate for the company's activity and business performance.




3.4 Conceptual Framework

3.5 Hypotheses Quality is also used as a differentiating factor in developed market of Europe where FMCGs are at cut throat competition and always looking for areas where they can snatch the competitors share. Further with the increasing awareness level among consumers regarding product quality and the role of quality in their decision making regarding product selection has also played a significant role in highlighting TQM as a tool for improving business performance in terms of revenue, profit maximization and organizational fat reduction. By realizing the importance of TQM and its output in manufacturing and service industries, processes Industries and FMCGs are also inclined towards TQM implementation for getting the maximum out of their business performance. Based on scholars view mentioned in literature and focus of FMCG companies on TQM following hypotheses are developed for investigating the relationship between TQM and organizational performance. Hypothesis 1 H1: TQM practices contribute to the revenue increase of the organizations.

Hypothesis 2 H2: TQM practices contribute to the profitability increase of the organizations. Hypothesis 3 H3: TQM practices contribute to reduction of the organizational fat.

4.0 Data Analysis and presentation This research is an investigative study to determine the impact of TQM on the improvement of business performance. For this purpose three FMCG companies: Unilever Pakistan, Reckitt & Benkiser Pakistan and Engro Food Ltd were selected for analysis and determining the impact of TQM practices upon their business performance improvement. The chart mentioned below is the descriptive analysis of the primary data collected through questionnaire from aforementioned three FMCGs.

Organizations Revenue

Reduction in Organizational Fat

Organizations Profitability

TQM

Organizational Management systems and procedures

Improved Business performance




Descriptive Summary of the Data

Particulars St. Disagree Disagree Neutral Agree St. Agree

Quality Vision 2.20% 1.10% 5.60% 47.80% 43.30%

TQM a part of organizational Mission - 2.20% 3.30% 57.80% 36.70%

Superior quality programs in their practices - 1.10% 21.10% 48.90% 28.90%

TQM enhance business performance - 1.10% 18.90% 53.30% 26.70%

Financial performance Increased (TQM) 1.10% 4.40% 6.70% 64.40% 23.30%

Financial performance Competitor 1.10% 8.90% 7.80% 57.80% 24.40%

Revenue increased due to TQM programs 1.10% 4.40% 10.00% 64.40% 20.0%

Trading Revenue increased due to TQM 2.20% 7.80% 4.40% 61.10% 24.40%

Increased in Product Demand (More Revenue) 1.10% 4.40% 7.80% 56.70% 30%

Trading Margin Improvement 1.10% 7.80% 5.60% 58.90% 26.70%

Trading Margin Competitors 1.10% 7.80% 5.60% 62.20% 23.30%

Bottom Line Performance 1.20% 8.90% 1.10% 66.60% 22.20%

Quality Program Increased Profit Margin 2.20% 3.30% 2.20% 71.10% 21.10%

Defects & Market Complains 1.10% 4.40% 3.30% 60.00% 31.10%

Value Stream Mapping - 6.70% 6.70% 56.70% 30.00%

Waste Reduction - 1.10% 4.40% 48.90% 45.60%

Flexible Manufacturing System 1.10% 4.40% 62.20% 32.20%

JIT & Days on Hand 1.10% 4.40% 56.70% 37.80%

Statistical Tool & Process Capability Measures 2.20% 10.00% 61.10% 26.70% Table: 1 (Descriptive Summary of Data)

4.1 Data analysis and interpretation As mentioned earlier that data encompasses the three large and fast growing FMCG companies of Pakistan. These are Unilever, Engro, and Reckitt. The pie chart shows the clear composition. Figure: 1 (Respondents Classification)

Designation

Frequency Percent

Valid Percent

Cumulative Percent

Valid Directors 12 13.3 13.3 13.3

Senior Managers 29 32.2 32.2 45.6

Managers 49 54.4 54.4 100.0

Total 90 100.0 100.0 Figure: 2 Respondents as per Designation




4.2 Reliability Analysis Reliability implies internal consistency which in turn requires that the items should be very closely related to one another. This would be seen through their fairly high causative correlation with one another. Cronbach's Alpha measures the internal consistency or known as coefficient of reliability .Questionnaire which was used for data collection has been gone through reliability testing and Cronbach’s alpha is used for testing the reliability of the instrument. Table 2: Reliability Statistics 4.3 Testing of Hypotheses In order to test hypotheses and determining statistical relationship SPSS is used. H1: TQM practices contributes to the revenue increase of the organizations In this hypothesis a model is developed among revenue increment (IR) and TQM1 and TQM2. In this model revenue increment is the dependent variable which is relying and dependent on TQM philosophies and practices mentioned as TQM1 and TQM2. Organization’s vision, mission and quality management systems which are the ignition point or foundation stone for creating a quality culture are tested that is there any relationship:

Increased in Revenue (IR)=α+β1 TQM1+β2 TQM2…….. (1)

Table 3: Model Summary Here value of R square come out be 0.174 which means that revenue increment is 17.4 % explained through TQM1 and TQM2 which is significant. Adjusted R square value which is the refined and purified value of R square also comes out to be 0.155 which is 15.5% and considered as significant.

Table 4: Coefficients By determining the coefficients through SPSS and substituting those in the model below mentioned result is obtained shown as below:

Increased in Revenue (IR)=1.164+.221 TQM1+.393 TQM2….. (2)

On the basis of the results derived above we can conclude the following regarding H1.

- By keeping other variables constant 1 % increase in TQM1 will increase the revenue by 0.221( 22.1%) which is a significant relationship and it means that organization’s vision, mission and quality systems are strongly interlinked with revenue increment.

- Also by keeping other variables constant 1 % increase in TQM2 will increase the revenue by 0.393 (39.3%) which is again quite significant and it means that business processes effectiveness, financial leadership and well being contributes in revenue increment in a strong manner.

Table: 5 Anova On the basis of ANNOVA analysis which is indicating that overall model is significant (the p-value of F-Test is less than .05) but the model has low correlation and adjusted R-square. Revenue increment is 17.4 % explained through TQM1 and TQM2 Programs. The results are representing that TQM programs has positive, direct and significant effect on revenue. So we might not reject our hypothesis and hence can conclude that TQM practices contribute in the revenue improvements of the organizations. H2: TQM practices contributes to the profitability increase improvement of the organizations In this hypothesis a model is developed among profitability improvement and TQM1 and TQM2. In this model profitability improvement is the dependent variable which is relying and dependent on TQM philosophies and practices mentioned as TQM1 and TQM2. Organization’s vision, mission and quality management systems which are the ignition point or foundation stone for creating a quality culture are tested that is there any relationship exists in terms of their roles in profitability improvement. Further role of TQM practices like performance efficiency, financial well-being and competitive advantage were also explored in terms of bottom-line enhancement of the organizations. Profitability improvement (PI)=α+β1 TQM1+β2 TQM2……….. (3)

Reliability Statistics

Cronbach's Alpha N of Items

.772 19




Here value of R square come out to be 0.20 which means that profitability improvement is 20 % explained through TQM1 and TQM2 which is significant. Adjusted R square value which is the refined and purified value of R square also comes out to be 0.182 which is 18.2% and considered as significant.

By determining the coefficients through SPSS and substituting them in the model below mentioned result is obtained shown as below: Profit & Trading Margins = 1.619 + .014 TQM1 + .516 TQM2…….. (4)

On the basis of the results derived above we can conclude the following regarding H3.

- By keeping other variables constant 1 % increase in TQM1 will increase the profitability by 0.014 (1.4 %) which exhibits a relationship between organization’s vision, mission and quality systems and profitability improvement.

- Also by keeping other variables constant 1 % increase in TQM2 will increase the profitability by 0.516 (51.6%) which is again quite significant and it means that business processes effectiveness, financial leadership and well being contributes in profitability improvement in a very strong manner.

On the basis of ANNOVA analysis which is indicating that overall model is significant (the p-value of F-Test is less than .05) but the model has positive correlation and adjusted R-square. Profitability improvement is 20% explained through TQM1 and TQM2 Programs.

H3: TQM practices contributes to reduction of the organizational fat In this hypothesis a model is developed among organizational fat reduction and TQM1 and TQM2. In this model organizational fat is the dependent variable which is relying and dependent on TQM philosophies and practices mentioned as TQM1 and TQM2. Organization’s vision, mission and quality management systems which are the ignition point or foundation stone for creating a quality culture are tested that is there any relationship exists in terms of their roles in fat reduction. Further role of TQM practices like performance efficiency, financial well-being and competitive advantage were also explored in terms of fat reduction of the organizations. FAT = α + β1 TQM1 + β2 TQM2 ……………….. (5)

Here value of R square come out to be 0.161 which means that profitability improvement is 16.1 % explained through TQM1 and TQM2 which is significant. Adjusted R square value which is the refined and purified value of R square also comes out to be 0.142 which is 14.2% and considered as significant.

By determining the coefficients through SPSS and substituting them in the model below mentioned result is obtained shown as below: FAT = 2.34 + .292 TQM1 + .107 TQM2 ……………….. (6)

- By keeping other variables constant 1 % increase in TQM1 will decrease the organizational fat by 0.292 (29.2 %) which exhibits a strong relationship between organization’s vision, mission and quality systems and fat reduction.

- Also by keeping other variables constant 1 % increase in TQM2 will decrease the organizational fat by 0.107 (10.7%) which is again quite significant and it means that business processes effectiveness, financial leadership and well-being contributes in organizational fat reduction in a very strong manner.




On the basis of ANNOVA analysis which is indicating that overall model is significant (the p-value of F-Test is less than .05) but the model has positive correlation and adjusted R-square. Fat reduction is 14.2% explained through TQM1 and TQM2 Programs. The results are representing that TQM programs has positive, direct and significant effect on fat reduction. So we might not reject our hypothesis and hence can conclude that TQM practices contribute in the fat reduction of the organizations. Secondary Data Analysis Univariate time series semiannual data from 1991 to 2007 has been taken from both companies Reckitt and Unilever to develop and forecast ARMA (Auto regressive moving average) model for forecasting and comparing revenue. Mostly Univariate time series models required large number of frequency for better forecasting, so therefore semiannual data is taken to get better results. E-views is being used for complete analysis and forecasting of data. Analysis of Reckitt & Benkiser Firstly the original time series data has been plotted against time to check that either the data is time variant or invariant. The following results in form of line graph are obtained.

Figure: 3 (Sales Revenue Reckitt) The line graph indicating that the sales revenue Reckitt is on increasing trend with the passage of time and is time variant or Non stationary, although the series has no any structural break. The line is clearly giving a significant time series pattern. Therefore we have to make the first the series non-stationary through 1st difference, log 1st difference, 2nd difference and log 2nd difference.

1st Log Difference 1st log difference of sales revenue Reckitt is weak stationary rather than it is a pure stationary. The mean and variance of the series is 0.0548 and 0.0975 respectively. The series have not the zero mean but variance is more or less constant. So now we take 2nd log difference to check the series for stationary.

2nd Log Difference

Now the pattern of the series is indicating that the series has constant mean and variance with the passage of time and not changing overall. Therefore the series is stationary and we can further proceed for analysis with this series.

Unit Root Test

Before estimation of ARMA models the series must be stationary or unit root. Now we apply “unit root test” as a statistical inference to examine series X (2nd log difference) as a stationary or not.

Table 6: (Unit Root Test) Since the t-statistics value of Augmented Dickey-Fuller test lies within the acceptance region and it is also highly negative and p-value is .0000 which is also less than .05 therefore we don’t reject our null hypothesis i.e. X (2nd log difference) is a unit root stationary. Estimation of Various ARMA Models For estimation of ARMA models E-views is being used to develop different ARMA models. Two very important criteria are used for the selection of ARMA models the Akaike Info Criterion (AIC) and Schwarz Criterion (SIC). The best fit




models have the lowest AIC and SIC. The Best Fit Model is ARMA (2, 2):

………… (7)

Table 7: ( Estimation of ARMA Model) Model Statistics Adjusted R-squared: 0.823 Prob (F-Statistic): 0.00000 For Complete Model Statistics see Annexure 3. Forecasting Forecasting is an important tool to check the validity of the models. It is visually clear that the model is the ability to pick up the order that is dominated by the seasonal nature of local behavior. The Root mean squared error (RMSE) and Mean absolute Error (MAE) are also minimum showing best result of forecast. Table 8: Forecasting

Analysis and Interpretation Forecast of Sales has been conducted on those years data in which TQM was not implemented in Reckitt and on the basis of that sales revenue from 1991 to 2007 (Hussain, 2011) were analyzed and through ARMA model sales forecast from 2008 t0 2011 was predicted without TQM implementation. (Source Hussain, 2011)

Figure: 6 Comparisons Analysis of Unilever Pakistan Ltd Firstly the original time series data has been plotted against time to check that either the data is time variant or invariant. The following results in form of line graph are obtained.

The line graph indicating that the revenue of Unilever is on increasing trend with the passage of time and is time variant or non stationary, although the series has no any structural break. The line is clearly giving a significant time series pattern. Therefore we have to make the first the series non-stationary through 1st difference, log 1st difference, 2nd difference and log 2nd difference. 1st Log Difference

1st log difference of sales revenue Unilever is weak stationary rather than it is a pure stationary. The mean and variance of the series is 0.048 and 0.12 respectively. The series have not the zero mean. So now we take 2nd log difference to check the series for stationary.

Time Period

Forecasted Revreckitt (000,000)

2008s1 2,641 2008s2 2,710 2009s1 2,897 2009s2 2,994 2010s1 3,108 2010s2 3,126 2011s1 3,517 2011s2 3,713

Time Period

ForecastedRev Reckitt without TQM (000,000)

2008 5,351

2009 5,891

2010 6,234

2011 7,230

Time Period

RevReckitt Actualizedwith TQM (000,000)

2008 6563

2009 7753

2010 8453

2011 9485




2nd Log Difference Now the pattern of the series is indicating that the series has constant mean and variance with the passage of time and not changing overall. Therefore the series is stationary and we can further proceed for analysis with this series.

Unit Root Test Before estimation of ARMA models the series must be stationary or unit root. Now we apply “unit root test” as a statistical inference to examine series X (2nd log difference) as a stationary or not.

Since the t-statistics value of Augmented Dickey-Fuller test lies within the acceptance region and it is also highly negative and p-value is .0000 which is also less than .05 therefore we don’t reject our null hypothesis i.e. X (2nd log difference) is a unit root stationary. Estimation of Various ARMA Models: For estimation of ARMA models E-views is being used to develop different ARMA models. Two very important criteria are used for the selection of ARMA models the Akaike Info Criterion (AIC) and Schwarz Criterion (SIC). The best fit models have the lowest AIC and SIC. The Best Fit Model is ARMA (1, 2)

……......(8)

Model Statistics: Adjusted R-squared: 0.7255 Prob (F-Statistic): 0.00000 For Complete Model Statistics see Annexure 4. Forecasting: Forecasting is an important tool to check the validity of the models. It is visually clear that the model is the ability to pick up the order that is dominated by the seasonal nature of local behavior. The Root mean squared error (RMSE)

and Mean absolute Error (MAE) are also minimum showing best result of forecast. Analysis and Interpretation Forecast of Sales has been conducted on those years data in which TQM was not implemented in Unilever and on the basis of that sales revenue from 1991 to 2007 (Hussain, 2011) were analyzed and through ARMA model sales forecast from 2008 to 2011 was predicted without TQM implementation. Upon comparing it with the actual revenues realized after the implementation of TQM in Unilever it is clearly shown that sales revenues have been drastically improved by virtue of TQM at Unilever. Comparison between Forecasted Revenue (If we continue without TQM) and actual revenue after application of TQM is presented below.

(Source Hussain, 2011) Comparison between Forecasted Revenue (If we continue without TQM) and actual revenue after application of TQM is presented below

Time Period

ForecastedRev Reckitt without TQM (000,000)

2008 5,351

2009 5,891

2010 6,234

2011 7,230

Time Period

RevReckitt Actualizedwith TQM (000,000)

2008 6563

2009 7753

2010 8453

2011 9485

Time Period

Forecasted Revunilever (000,000)

2008s1 10912 2008s2 11023 2009s1 12132 2009s2 11321 2010s1 12,390 2010s2 12,412 2011s1 12,560 2011s2 13,510




5.0 Results and Discussion Since TQM role as an effective enabler of business performance improvement has been tested both empirically and statistically and it is established that at macro level TQM improves the business performance of the FMCG organizations and can also be generalized to other sectors after doing some further research. At micro level TQM is an effective tool for improvising organizational revenue and profitability and reducing organizational fat. All the hypotheses H1, H2 and H3 pertaining to organization’s revenue, profitability and fat are statistically tested and proven and TQM and its practices are verified as an effective enabler of business performance. In hypotheses it is also statistically verified that TQM contributes in trading revenue and gross profit margin improvement through effective implementation. A strong significance is observed in reduction of organizational fat through TQM practices and parameters like reduced market complains, reduced product defects, value stream mapping, waste reduction, flexible manufacturing systems, reduced days on hand and statistical control could be possible with TQM in practice and these results are depicted in ANOVA and regression done in earlier sections. Application of Auto regressive moving average method on revenue trend of both Reckitt and Unilever highlighted that their revenue are increased at a drastic level in last four years due to implementation of TQM as if they do not implement TQM then ARMA model is suggesting and forecasting much lower revenues for both companies for the same period of time. 6.0 Conclusion The study findings conclude the significance of Quality aspect in company’s vision, mission and systems for improved business performance. Financial capability and leadership as a competitive advantage is also heavily dependent on TQM practices. Significant evidences are also available now for considering organizational fat as an important area for firm’s performance improvement. All the hypotheses were proved and broadly indicating the relationship in business performance improvement in terms of revenue, profitability and fat reduction by virtue of TQM practices. With the conclusion of this paper it is clear that FMCGs can continue their up gradation in terms of revenue and profitability and fat reduction by focusing on quality at every step mainly in strategy formulation and business process designing..Hence organizational performance is improved in terms of revenues and profitability by having

proper strategic fit between TQM and the other complementing variables like revenue, profitability and fat reduction which is the essence of this study and proved empirically too. 7.0 Recommendations

Clear vision regarding quality with top management commitment should be defined since the beginning for more focus on business performance improvement.

Implementation of superior quality programs like Total quality management, Six Sigma, Total productive maintenance should be integral part of the organizations

Organizations should focus on creating products and services with bringing in quality since beginning rather than eliminating the fat afterwards

Organizations must perform value stream mapping when defining business SOPs.

Quality circle culture to be promoted in organizations for more ideas generation regarding continuous improvement and business complexity reduction.

Statistical tools should be used for data collection and analysis which will be helpful in continuous performance monitoring and suggesting remedial actions.

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